Jens Weidmann, president of the Deutsche Bundesbank, gestures as he speaks at the Suddeutsche Zeitung economic summit in Berlin, Germany, on Friday, Nov. 28, 2014. Euro-area inflation slowed in November to match a five-year low, prodding the European Central Bank toward expanding its unprecedented stimulus program. Photographer: Krisztian Bocsi/Bloomberg *** Local Caption *** Jens Weidmann Jens Weidmann, president of the Deutsche Bundesbank, gestures as he speaks at the Suddeutsche Zeitung economic summit in Berlin, Germany, on Friday, Nov. 28, 2014. Euro-area inflation slowed in November to match a five-year low, prodding the European Central Bank toward expanding its unprecedented stimulus program. Photographer: Krisztian Bocsi/Bloomberg *** Local Caption *** Jens Weidmann
Jeff Black and Rainer Buergin Berlin
GLOBAL regulators may soon be focusing on making individuals just as accountable for banking misbehaviour as the institutions that employ them.
With a slew of scandals freshly in mind over benchmark rigging that led to billions of dollars in fines for international lenders, finance ministers of the Group of Seven (G7) nations decided last week that a new global code of conduct needs to be drawn up. The Financial Stability Board has been given the task.
Revelations of foreign-exchange manipulation have worsened the image of a banking industry already darkened by the fallout from the financial crisis. At the same time, governments are recognising that the response to misdeeds should move toward encouraging better conduct from the outset, and rely less on penalties that weaken banks’ capital health.
“This kind of malpractice has got to do with the dominant company culture but not just that – it’s also about the behaviour of individuals, who should not be absolved from responsibility,” Bundesbank president Jens Weidmann said on Friday.
The code “should be a voluntary self-commitment made by the financial industry, an international initiative”, he said.
Last week’s meeting of finance ministers and central bank governors will be followed by a summit of government leaders in Bavaria on June 7.
Bad apples
Rule makers and judicial authorities have so far found it difficult to hold individual employees responsible for misconduct and instead have imposed penalties on the banks.
While regulators spent seven years chasing the manipulators of the London interbank offered rate, or Libor, the first individual prosecution only started in May.
Meanwhile, Deutsche Bank was handed a $2.5 billion (R30bn) fine in April, and six banks including JPMorgan, Barclays and UBS were fined $5.8bn on May 20 after a currency-rigging probe by the US Justice Department.
“It is important to change the individual behaviour of bankers,” said Thomas Mosk, a researcher on conduct in banking at the Sustainable Architecture for Finance in Europe Centre in Frankfurt.
“Culture is the buzzword of the moment. Regulators believe bad behaviour at banks goes deeper than a few bad apples and demand a cultural change,” said Mosk.
Codes of conduct already exist in some countries, such as in the UK since 2011 and the Netherlands since last year.
Senior UK banking executives are also taking part in a ‘banking standards board’ to help improve public trust. Even so, a global standard that major states sign up to might make it less easy for ethical breaches to be overlooked.
“Currently a certain number of disparate codes exist in different jurisdictions, and they were often ignored,” Banque de France governor Christian Noyer said after the meeting. “We need to pull all this together.” – Bloomberg